Warning: Iran-US-Israel Conflict Could Bankrupt Indonesia's Fuel Subsidy Programme
Jakarta — A potential escalation of conflict between Iran and the United States working with Israel could bankrupt Indonesia, particularly if Iran continues to block the Strait of Hormuz—a critical shipping lane for global petroleum supplies.
Iran has already closed the Strait of Hormuz in response to the death of Supreme Leader Ayatollah Ali Khamenei. Bhima Yudhistira, Executive Director of the Centre of Economic and Law Studies (CELIOS), projects that crude oil prices could surge to US$100–120 per barrel. Oil prices have already risen approximately 13.4% over the past month, with further increases anticipated.
“The disruption of the Strait of Hormuz will affect 20% of the world’s oil supply,” Bhima told CNBC Indonesia on Monday (2 March 2026).
According to Bhima, the situation is worsened by heightened security risks in the conflict zone, including insurance companies’ refusal to cover logistics vessels transiting the area. This threatens to disrupt distribution and complicate Indonesia’s oil import processes.
As a net oil importer, Indonesia faces significant fiscal consequences. Under the 2026 state budget simulation, each US$1 per barrel increase in oil prices above budget assumptions adds approximately Rp10.3 trillion to government expenditure. Should oil prices reach US$100–120 per barrel, state spending could rise by up to Rp515 trillion in 2026. This includes not only fuel subsidies but also compensation to state oil company Pertamina and electricity subsidies.
“There is a direct double burden on the state budget. The situation is worsened by investor concerns about flight to quality, causing rupiah depreciation,” Bhima explained.
The food sector is also vulnerable, particularly imports sensitive to currency fluctuations and supply chain disruptions, including soybeans, wheat, and meat. Imported inflation from oil and food commodities will create a downward spiral in consumer purchasing power.
“The public is clearly unprepared for fuel price increases and volatile food inflation. If the conflict continues and expands, many developing nations could fall into economic crisis,” he added.
Separately, oil and gas practitioner Hadi Ismoyo views the latest Middle Eastern conflict as far more serious than previous tensions. The death of Supreme Leader Ayatollah Ali Khamenei represents a turning point for broader escalation, including the closure of the Strait of Hormuz.
“This means 20% of the world’s oil supply will be lost, and 30% of global LNG supply will disappear from the market. Oil and LNG commodity prices will rise significantly,” he said.
Ismoyo projects conditions will continue to deteriorate, noting that Imam Khamenei was not merely a political leader setting strategic policy but also a revered spiritual leader within Shiite clerical circles. “This will awaken deep-seated grievances similar to the legacy of Imam Hussein at Karbala, given that the US and Israel are responsible for his death,” he concluded.